Don't Overthink G-7 Communiques: Strategist

Currency investors could use a little more clarity than they have been getting.

A statement Tuesday from the G-7 suggesting those countries were comfortable with a recent sharp decline in the yen was followed by word from an unnamed official asserting that the original statement had been misinterpreted. And that kerfuffle followed a statement from a U.S. official voicing support for Japan's efforts to battle deflation.

Not surprisingly, currencies were all over the place, with the yen first sliding and then shooting higher. And the whole tempest in a teapot was essentially meaningless, according to Neil Mellor, a currency strategist at Bank of New York Mellon.

"It is a source of bemusement that a group whose ordained goal is to temper movements in currency rates can induce quite so much volatility in the market," says Neil Mellor. "It is testimony to the linguistic dexterity of the statement's authors that they can encapsulate disparate views and emotions by producing text that says everything and nothing."

Mellor argues that years of experience have shown that flexible exchange rate regimes are more successful, period. So for him the back-and-forth is just creating unnecessary confusion — and is likely to have little or no long-term impact. "Short of the threat of trade war, what possible incentive can be dangled before Japan to dissuade it from pursuing policies that its government believes offer genuine hope of pulling its economy from the mire after two decades of failure?" he asks.

Mellor's bottom line: "Let us enjoy the political machinations and rhetoric that generally precede any meeting of the G-20/-7, but let's just call it just that: rhetoric."